September 21, 2000

Chris Larsen, CEO
E-Loan, Inc
5875 Arnold Road
Dublin, CA 94568
(925) 241-2400

Madame Chairwoman, Members of the Committee, thank you for allowing us this time to speak on behalf of consumers’ need to access their credit scores and the factors that determine their scores.

My name is Chris Larsen, CEO of E-Loan. E-Loan is an on-line consumer lender providing mortgage, auto, credit card, home equity and business loans exclusively over the Internet. E-Loan has completed over $3.5 billion in funded loans to consumers since launching in 1997 and is publicly traded on NASDAQ (EELN).

E-Loan strongly supports legislation to allow consumers access to their personal credit score data along with all the factors and data that go into those scores at any time and as often as the consumer chooses.

Over the last 5 years, credit scores, specifically FICO scores, have become the single most significant piece of data used to determine whether a consumer can get a loan and as importantly, how much consumers pay and what terms they receive. Over 75% of all mortgage decisions use credit scores in the underwriting process. Credit scores are also widely used in auto lending, credit card decisions and other consumer transactions as diverse as insurance and even rent eligibility.

A low score can cost a consumer substantially higher financing costs. For example, recent auto loan criteria would enable a customer with a FICO score of 720 or higher, generally considered an excellent score, to secure a rate of 7.5%, whereas a customer with a score below 680, just 40 points lower, would pay a rate over 10%.

Typical FICO interest rate matrix for auto loans (as of 9/00)

E-Loan Shows Scores for Free via Internet - Cut off by Credit Bureaus

Because credit scores have become so profoundly important in determining a consumer’s participation in the credit markets, E-Loan believes it is essential to show consumers their scores so they could better understand their credit prospects and better manage their finances.

E-Loan began showing consumers their credit scores in February of 2000 as part of our on-line debt management service. Using a secure personal web page, consumers could obtain for free their FICO credit score with links to information about what typical ranges of scores meant, what factors affected their credit scores and what a consumer could do to improve their score (see Exhibit I).

During the first four weeks over 25,000 consumers accessed their credit scores for free using the E-Loan service. Response from consumers, many of which did not know they had a score let alone its importance in obtaining credit, was overwhelmingly positive (see Exhibit II).

Unfortunately, in April of 2000, E-Loan’s free credit score program to consumers was shut down by the credit bureaus under intense pressure from the creator of FICO scores, Fair, Isaac. While E-Loan could still get access to credit scores for processing loans, the data feeds were only made available as long as E-Loan did not show scores to consumers. E-Loan was accessing credit scores through a third party credit provider that contracts for credit data through the three credit bureaus, which in turn contract for credit score algorithms from Fair, Isaac. Fair, Isaacs’ contracts with the credit bureaus prevent any user from providing credit score access to consumers.

Consumer reaction to the shut down of the E-Loan service was one of great disappointment. People couldn’t understand why they didn’t have a right to view this extremely important personal data, particularly when lenders are given complete and unfettered access.

A reason often cited by the credit industry in refusing consumer disclosure is that consumers will not understand what their scores mean. E-Loan’s experience in releasing credit scores to consumers has shown just the opposite. Of the 25,000 people that successfully accessed their credit scores prior to the shut down, there seemed to be a high level of understanding and positive consumer awareness.

The Internet in particular is an extremely effective medium for communicating score data – giving consumers instant access to their scores, linked to the specific factors and data that built the score as well as general data on credit scoring. In our experience the lack of score disclosure is much more confusing to consumers.

Another reason often cited by the credit industry in refusing consumer disclosure is that once consumers know what goes into their scores they will "game" the system by engaging in activities that result in better scores. E-Loan believes this is precisely why credit scores need to be disclosed – consumers need to be able to improve their financial health through knowledge and understanding. We call this effective consumer debt management.

After recent legislation requiring the disclosure of credit scores moved through the California Assembly and State Senate (California Senate Bill 1607), Fair, Isaac announced that general credit score factors would be made available to consumers. While this is a step in the right direction, Fair, Isaac has still refused to allow the disclosure of the actual scores or the specific factors that adversely affect an individual’s scores. E-Loan’s attempts to re-establish its data feeds for its free credit score disclosure have been consistently refused by the bureaus under continued contractual restrictions from Fair Isaac.

At this point there is still no source available that allows consumers access to their scores.

Disclosing Scores Should Increase Market Efficiency

Credit scores are an effective measure of consumer creditworthiness and have lead to increased efficiency in the lending industry. However, a lending market based on credit scores can only be efficient and fair if both lenders and consumers have full transparency into the scoring systems. As it stands today, a key market participant – consumers – do not have transparency preventing them from optimizing their credit decisions.

Credit score transparency to consumers should make markets more efficient and the lack of transparency can be seen as a market failure in that a single company is blocking the benefits of many market participants. We believe legislation allowing credit score disclosure to consumers will correct this market failure.

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CONGRATUALTIONS!!!  You are absolutely on the side of the Angels in that
fight. Hang Tough, consumers support you!!!  You WILL win in the court of
public opinion, and that's the most important battle.

=======================
I just read an article about your company releasing the
FICO scores.  I think it is a great idea.  The conusmer
should have the right to see his score.  Buying a home
is one of the most stressful decesion's a person can
make.  And, in order to make an educated deceision or
improve our situation we--the consumer--need to see
our score. According to the article FICO beleives that it is too
complicated for the consumer.  FICO does not know
what is and isn't confusing for me.  Let me decide!!!  All
American's are not idiot's.

======================
THANK YOU, THANK YOU for
putting access to FICO
information on your site.  I
understand that Fair Isaac is
really angry about this, but
I was thrilled to verify that
I have partially recovered
from a series of really tough
financial setbacks and could
probably purchase a home
now.  Thank you.

========================

>I read today in the San Jose Mercury News that you
>plan to publish the Fair Issac credit score, a process
>never allowed before.
>
>I applaude your willingness to change the system and
>disclose the processes & information only shared by a
>select few.
>
>The only way the consumer will ever get a fair deal is to
>have power over the information.  Strangely enough, it
>has taken this long for people to have control over what
>was rightfully theirs all along.

===========================
What a disappointment! I logged on specifically to view my credit score
before pursuing a car loan. I agree that information should be readily
available to all consumers. In my view, it's like taking a major exam in
school and then not being allowed to know your score!

I hope you are able to arrange with another credit agency to provide this
service since Equifax seems unwilling to do so.

Good luck and keep us posted.

Exhibit II: Sample Consumer comments over Credit Score access (unedited)

=========================
Thank you for adding the FICO
score availability.  It is a
great service and will keep
me loyal to e-loan.
============================

i would like to see my credit score, why does equifax have the power to say
that i can't see it?  it is after all my credit score and i should be able
to view it?Thanks

====================
Way to go for having the guts to stand up to the credit bureaus and letting
the consumers see their credit score!"
===================

I have just read about you
and E-Loan in the article by
K.R. Haney of the Washington
Post Writer's Group and was
compelled to write.  You are
to be commended on your
decision and I wish you
success in your efforts.
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